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UK – Pensions auto-enrolment first anniversary approaching

30 September 2013

From 1 October 2012, employers across the United Kingdom were legally required to automatically enrol certain workers (aged at least 22 and under State Pension age, and earning over £9,440 per year in 2013/14) into a qualifying workplace pension scheme. Employers with more than 120,000 workers had to place eligible workers into the pension scheme from the start date, with other firms gradually being enrolled over the next six years depending on the number of workers they employ.

Temporary staffing firms have also had to negotiate this phased introduction system with larger staffing firms having to implement auto-enrolment ahead of their smaller competitors.

In a study of 1.9 million workers across the public and private sector published by the Department for Work & Pensions in August, the average opt out rate was found to be 9%. Most individual employers had an opt out rate ranging between 5% and 15% of the workers they had automatically enrolled. So far, there is no corresponding study available of opt out rates experienced by staffing companies.

Paul Leandro, an associate at consultancy firm Barnett Waddingham, commented: ““Auto-enrolment appears to have been relatively successful in its first year in action, with lower opt-out rates than were forecast and positive feedback from some of the larger employers suggesting the policy has worked well. The UK now has more people saving for retirement, and that is a good thing. It has also helped increase employee engagement in pensions, something which has been a challenge for our industry since workplace DC pensions were introduced.”

"Additionally, auto-enrolment has provided the catalyst for some employers to review their pension arrangements, rationalising the benefits where appropriate and introducing better quality schemes.  The aim of improving member outcomes has typically been the main objective in introducing new pension arrangements for existing staff.”

He continued: "However, the journey towards staging dates for employers has not always been a smooth one.  The complexity of the rules has meant employers have had to create extra systems and processes just to deal with administering the new rules.  In some cases employers have had to recruit extra people into their payroll and HR teams just to deal with the new demands. In particular, those employers operating weekly payrolls have found it extremely difficult to cope. The ongoing process of assessing employees is more labour intensive than was expected.”        

“It has also been a challenge for the pension and payroll providers.  Whilst some providers’ systems are impressive in how they streamline the auto-enrolment processes, some providers are still developing their systems, having realised that their first releases of software were not flexible enough to cope with employers’ demands.  A frustration for employers is that they have to tailor their processes to cope with the providers’ requirements, rather than the other way round.”

“One of our clients has undertaken a major project to prepare for auto-enrolment.  It has recruited extra people to cope with the demands and has spent a lot of time reviewing, changing and implementing new processes to deal with the new requirements.  After all this, they realised that some of their auto-enrolled employees are only receiving circa £1.50 a week into a pension.  A clear example of overheads outweighing the benefits,” Mr Leandro concluded. 

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